Kinney v. Tabor

Champlin, J. The court below entered a decree dismissing the bill of complaint, and complainants have appealed to this Court. They have printed, as a part of the record, the opinion filed by the circuit judge, Hon. Alfred J. Mills, before whom the cause was heard. It covers the questions raised by the record so completely that I adopt it as my own. He says: “ This litigation arises out of the partnership relations existing between the complainants and the defendant Hob.inson, and the bill is in the nature of a supplemental bill; the particular relief prayed being supplemental and contingent upon that awarded in the case of Kinney, Adams & Co. against Orrin Robinson, just decided.1 “ The bill of complaint in that case was filed March 3,1873, aud the defendant’s answer on the twenty-fourth of March, 1873. The object of that bill, in brief, was to wind up the copartnership dealings between the parties, and to obtain an accounting thereof. The business dealings of the parties were carried on pursuant to an agreement in writing, which — 519 — bas been referred to particularly in that case, and which should now be considered as a part of this opinion, because reference to it will be necessary to an understanding of the questions involved.” [The agreement reads as follows: “ This agreement, made this sixteenth' day of January, one thousand eight hundred and seventy-one, between Orrin Robinson, of the village of Lawton, Van Burén county, and State of Michigan, of the first part, and Kinney, Adams & Co., consisting of Warren D. Kinney, John Ihling, and Franklin B. Adams, of the State, county, and village aforesaid( of the second part, Wiinesseth, that the said Orrin Robinson, in consideration of the covenant on the part of the party of the second part hereinafter contained, doth covenant and agree to and with the said Kinney, Adams & Co. to rent or lease to them the full, equal, and undivided one. half of lot No. (5) five, block No. (1) one, Dodge’s addition to the village of Lawton, together with the building, machinery, tools, patterns, and everything thereto belonging or in anywise appertaining, and together with all territory (consisting of Cass, Berrien, St. Joseph, and Van Burén counties) for the manufacturing and sale of the revolving mould board plow and other agricultural implements, and shop work, etc., for two years from date hereof, for the sum of two hundred and fifty dollars, payable at the end of the first year, and three hundred dollars for the second year, payable at the end of the year. “ Said Orrin Robinson to put in his time, Kinney, Adams & Co. to put in equal time, and run the foundry and shop for the time specified to the best advantage; the said Kinney, Adams & Co. to buy of Robinson one-half of the stock now on hand at cost, and the said Robinson, at the end of two years, to buy of Kinney, Adams & Co. the one-half of what stock there is on hand then, at cost; the said Kinney, Adams & Co. to furnish capital, along as the same may be needed, to the amount of two thousand dollars, and at the end of the two years to draw out the amount of capital put in by Kinney, Adams & Co.; the said Orrin Robinson to pay Kinney, Adams & Co. interest at ten per cent, per annum on one-half put in, and divide the profits, if any, equally between the said Robinson and Kinney, Adams & Co. “If any new machinery or tools, etc., are put in the shop, such tools and machinery to belong equally to the said Orrin Robinson and Kinney, Adams & Co. at the end of the two years. “Kinney, Adams & Co. reserving the right, and the said Orrin Robinson agrees to sell Kinney, Adams & Co. the full, equal, and undivided one-half of lot No. (5) five, block (1) one, Dodge’s addition to the village of Lawton, together with all the hereditaments and appurtenances thereto belonging, with all that reverts to him at the expiration of this lease, for the sum of twenty-five hundred dollars, payable in three annual payments, with interest, provided Kinney, Ad.ams & Co. conclude to buy the property at the end of the first year, and in case they do buy at that — 520 — time, then this lease, for the second year, to be null and void and of no effect; Kinney, Adams & Co, reserving the right to buy or not, as they may elect. “Orrin Robinson. “Warren D. Kinney. “John Idling. “Franklin B. Adams.”] “ On March 17, 1874, Kinney, Adams & Oo. commenced a suit in the circuit court for this county to recover against the defendant Robinson a sum claimed to be due them from him for various articles- of hardware furnished by them to him in 1870, 1871, and 1872. “ On March 31, 1874, Robinson appeared in the case by Lester A. Tabor, his attorney, and pleaded to the plaintiffs’ declaration the general issue, and gave notice thereunder of set-off, which consisted in part in a claim for rent of the undivided one-half of lot number 5 of block 1 of Dodge’s addition to the village of Lawton, for the years 1871 and 1872, being the premises occupied by the firm of O. Robinson & Co. in carrying on their business under their contract of co-partnership. “ By the terms of the contract above referred to it was provided that Kinney, Adams & Oo. should pay to Robinson, as rent for the undivided half of these premises, $250 at the end of the first year, and $300 at the end of the second year; and it was claimed that the covenant to pay these sums as rent was independent of the other covenants contained in the agreement, and that the amount due thereunder was available to Robinson as a set-off as against the plaintiffs’ claim. “ The Supreme Court finally held this to be the law, and the defendant recovered, as against Kinney, Adams & Co., on account of his set-off over and above the plaintiffs’ demands, a judgment for $607.54, upon the twentieth day of April, 1883. “Upon the affirmance of that judgment by the Supreme Court, on January 15, 1884,1 Kinney, Adams & Co. filed the original supplemental bill, so called, in this case, praying an injunction against the defendant Robinson, restraining him from the collection thereof until the further order of the court; alleging his insolvency, the pendency of the chancery suit between themselves and Robinson to settle their copartnership dealings; claiming that upon the decision of that case it would be decreed that Robinson was indebted to them — 521 — in a sum much greater than the amount of his said judgment; that the rent for which the judgment was recovered had been, in the course of the copartnership dealings, paid; and praying that he might be compelled to set off his judgment as against the amount to be decreed them against him. “ Upon the filing of this bill, on the seventeenth day of January, 1884, a restraining order, with an order to show ■cause upon the defendant Bobinson, was entered, and on the twenty-sixth day of January, 1884, after hearing counsel for the respective parties, an order was made directing the issuance of an injunction as prayed by complainants. “ The defendant Bobinson filed his answer on the nineteenth day of February, 1884, and by it, as well as upon the hearing had upon the order directing Bobinson to show cause, the general equities of complainants’ bill were denied, and it was claimed that on the twenty-third day of March, 1874, Bobinson was justly and legally indebted to Lester A. Tabor in the sum of $150 on an account then and there stated and agreed upon, and that on that day, in order to properly defend the action at law brought by Kinney, Adams & Co., and then pending, he duly employed Mr. Tabor as his attorney in that suit, and agreed to pay him $25 as a retainer fee therein, and also any and all reasonable fees for his services in such action; and that on that day, in order to pay and satisfy such indebtedness and retainer, and such future services, expenses, and disbursements as his said attorney might render and expend in that suit, he duly, and by writing under his hand, assigned to Mr. Tabor all his interest in the several items set up by him as his set-off in said action, and also any judgment that might afterwards be rendered in his favor therein; and that Mr. Tabor then and there agreed that he would conduct said cause to its final determination, paying for the defendant therein all expenses and disbursements connected therewith; and that afterwards, and on the ■twenty-first day of April, 1883, he had a settlement with Mr. Tabor for his services, expenses, and disbursements, which amounted to a sum equal, or about equal, to the amount •of said judgment in said cause, and that, in order to satisfy and pay the same, he again, by writing under his hand, duly assigned to Mr. Tabor all his right, title, and interest therein ; and that thereafter, and after the filing of the complainants’ bill of complaint, the complainants received from Mr. Tabor notice of such assignments. After the issuing of the preliminary injunction, which, by its terms, enjoined the collection of the said judgment, — 522 — not only by Robinson but also by Tabor, he applied to the-Supreme Court for relief by way of prohibition, which that Court ordered unless he should be made a party to the litigation. Thereupon the complainants amended their bill, and made Mr. Tabor a party defendant. His answer was filed in due time. “The honafides of the said assignments to the defendant Tabor are not questioned,but it is insisted that he took such' assignments pendente lite, and subject to complainants’ equities. “ The defendants contend that the assignments were not taken subject to any such equities as those claimed by the complainants, and that the complainants are not entitled to-compel a set-off as prayed by them, and that the rent for which the judgment was obtained had not been paid during the copartnership dealings of the parties, and that such a defense is not open to complainants upon this record. “Defendant Tabor was an attorney at law, and the defendant who recovered judgment. “ As assignee simply, he would take the chose in action assigned to him subject to all equities existing between the parties at the time of assignment. “As attorney for defendant, he would be entitled to a lien on the judgment found due to his client, to the extent of his taxable costs at least, subject to no right of set-off against the same; and as, under our statute, an attorney is permitted to agree with his client upon the measure of his compensation, that agreed sum stands as a charge or lien on the judgment obtained by him, in the same manner as taxed costs, and the attorney is regarded as an equitable assignee of so much of the judgment as is necessary to satisfy the compensation agreed upon, — a doctrine which is quite different from that adopted in several of the states. “ The exact question came up in Rooney v. Second Ave. R. R. Co., 18 N. Y. 368, in which case it appeared that it had been agreed between the plaintiff and his attorney that the latter should commence and prosecute an action to its final termination, without fee, and upon his own risk, and upon his final success he should receive for his services one-half the recovery; and, if the amount should not exceed $600, the taxable costs also. He recovered a judgment of $1,179.17, and it was held that he had alien on the judgment for the amount of his agreed compensation. “ In Ely v. Cooke, 28 N. Y. 365, it appeared that the atr torney had made an agreement With his client that he should — 523 — receive, as compensation for carrying on the defense of am action prosecuted to set aside a judgment held by that client, the whole amount of the recovery; and the court of appeals, following the case last cited, held that it was lawful to make such an agreement, that it was based upon a good consideration, and that after it was made the client liad no interest left in the judgment, and another judgment held by a creditor of the client could not be set off against it. “ In Perry v. Chester, 53 N. Y. 240, it was held that a defendant had the right to assign to his attorney the prospective costs against his adversary in consideration of the services to be rendered by the attorney in earning such costs and that, where such a transfer had been made, in case the-defense was successful, the claim of the attorney to a judgment for the costs could not be defeated by setting off against them a prior judgment obtained by the plaintiff against the defendant. “ In Wells v. Elsam, 40 Mich. 220, which was a cause im equity to obtain an offset of judgments, our Supreme Court used this language: “ ‘ Although some courts have not deducted the costs of attorneys, yet such we think was the better practice, and the statute is plainly designed to enforce that principle. Compensation by agreement has now taken the place of taxed costs, and this has been expressly recognized in New York under a similar statute.’ “ The Court then cite Rooney v. Second Ave. R. R. Co.? which I have already referred to, and which they approve in the following language: “ 1 We think this decision is in strict accordance with the manifest purpose of the statute, and we do not think it necessary to discuss the many discordant cases which have been cited on the general practice. The statutory principle will clearly protect these defendants, and it is no more than justice requires. There is no averment in the bill that after any proper claims of the attorneys were satisfied the balance left would exceed $1.00. Assuming, therefore, that under our statutes there is any propriety in resorting to equity without special and peculiar reasons, we think there is no ground on which the present bill can be sustained.’ “ lu examining this case, I- have noticed that the citations-from New York cited by counsel for complainants, and in an early opinion, in the ease referred to, by myself, were before the Supreme Court, in the brief of counsel, but that they did not meet the approval of that Court. “ In Perry v. Chester, already referred to, the court of — 524 — appeals used language which I consider applicable to. the case at bar, and say: “ ‘ Putting tbe case in the most favorable view for the defendant, the question here is whether a party having a judgment against another is entitled to set it oil against a judgment for costs in a subsequent litigation1 commenced by such party, against the rights of the attorney who obtained the latter judgment, which rights were secured by an express contract in writing transferring such costs to him before any judgment was rendered. There is clearly no legal right, for the reasons before stated, and I am unable to appreciate any superior equity. Such contract is valid, and, if founded upon professional services to be rendered in the case, the consideration is ample and meritorious. If such a transfer was denied to a party, he might be practically deprived of the right of interposing his defense. A person sued has a right to secure his attorney with the prospective costs against his adversary, in consideration of the services to be rendered in earning such costs.’ “And our own Supreme Court have expressly held that attorney and client may agree upon compensation to be paid him, and that the sum so agreed upon remains as a lien on the judgment in place of taxed costs. “ Now, it is not disputed in this case but that the defendant Tabor rendered the services claimed by him, and paid out the sums by way of disbursements charged in accordance with the agreement with Robinson. Nor is it claimed that his charges were or are unreasonable. And the testimony shows that, at the time he made the agreement, it had not been ascertained that Robinson was in debt to complainants, and, indeed, the contrary was at that time urged and insisted upon ; and if it had not subsequently happened that the assets •of the firm realized so much less than their apparent cash value, as shown by the inventory taken by the parties, it would be doubtful whether any balance would have been due the complainants from Robinson. “ I can see, therefore, no way under the law which would authorize a decree' setting off complainants’ decree against defendant’s judgment; and, as the lien of defendant Tabor extended to the whole judgment obtained by Robinson against complainants, it is not at all clear that satisfaction of that judgment should have been suspended or delayed until the unliquidated claim of the complainants could be ascertained and a balance struck as between themselves and Robinson. Mohawk Bank v. Burrows, 6 Johns. Oh. 317 ; Ainslie v. Boynton, 2 Barb. 258. It was ordered restrained, however, because it was deemed just that complainants — 525 — should have their day in court upon their case as it might be made upon the proofs. “ The doctrine of the cases last cited, as well as of Duncan v. Lyon, 3 Johns. Ch. 360, is to this effect: that, though one judgment may be set off against another, a demand on one side raised to a debt certain, and an unliquidated debt on the other, will not warrant an injunction restraining the collection of the one until the other can be reduced to a certainty, and in condition to be set off. “ Assuming, however, that the defendant Tabor stands before the court as a mere assignee of a chose in action, how does the complainants’ case stand, admitting, for argument’s sake, the propriety of en joining the satisfaction of the Robinson judgment until the complainants should obtain the decree which they ask to set off in this case 2 “ In Lockwood v. Beckwith, 6 Mich. 173, it was held that the existence of mere cross-demands is no ground upon which an equitable set-off may be awarded, and that, although there is much doubt thrown over this branch of the law, and much conflict of authority regarding it, the true rule is that the debt must have existed as a mutual credit at the time of the assignment of it to authorize a set-off as against the rights of the assignee; in other words, that the equity must have attached to the demand, and not to the person of the debtor. “And the Court-in that case referred to 2 Story, Eq. § 1435, where it is laid down that,— “ ‘Independently of the statutes of set-off, courts of equity, in virtue of their general jurisdiction, are accustomed to grant relief in all cases where, although there are mutual and independent debts, yet there is a mutual credit between the parties, founded, at the time, upon the existence of some debts due by the crediting party to the other. By mutual credit, in the sense in which the terms are here used, we are to understand a- knowledge on both sides of an existing debt due to one party, and credit by the other party founded on and trusting to such debt as a means of discharging it.’ “In Hale v. Holmes, 8 Mich. 37, the Supreme Court held that in that case there was no mutual credit, and that insolvency alone is insufficient, even in case of positive indebtedness, to authorize an equitable set-off, and observed that this was expressly held in Lockwood v. Beckwith. “ In construing the contract of the parties to this litigation, the Supreme Court held that the covenant to pay rent to Robinson was independent and not dependent, and it is manifest that there was no mutual credit. The rent was to be paid to Robinson at the end of each year. The advancements — 526 — made by Kinney, Adams & Co. were to be taken out of the .assets of the copartnership, and not paid by Robinson in person. “The parties did not contemplate a loss in their business, but a profit, and there is no testimony which establishes any subsequent agreement or understanding, before or after the judgment was obtained by Robinson, which could affect the rights of the defendant Tabor, that the sums due Robinson for rent should be set off as against any sum it might be found that he owed the copartnership upon a settlement of its affairs. Indeed, as I have before said, Robinson has always insisted that he was not in debt to complainants at all. “ The equities of the defendant Tabor as to the indebtedness existing from Robinson to him prior to the assignment by Robinson were at least equal to those of the complainants, and the services rendered in the litigation, which Robinson was fully authorized to defend, would also seem to give him ■equal equities, as to them, on that account. “The doctrine laid down by the Supreme Court, as expressed in 6 and 8 Mich., has been repeatedly approved, and the case of Ledyard, v. Phillips, 58 Mich. 204, decided by that Court, is in consonance therewith, and not inapplicable in many of its features to the case in hand. “I am aware that in Gay v. Gay, 10 Paige, 374; Davidson v. Alfaro, 80 N. Y. 660; Lockwood v. Bates, 12 Amer. Dec. 121, — a different result from that reached by our Supreme Court, and from the views expressed in this opinion, in some respects, was arrived at; but, as I said before, those •cases were cited in the Elsam Gase, and did not meet the approval of our Court. “ The claim made in complainants’ bill, that the amount recovered by Robinson was in reality paid by complainants to him before that judgment was recovered, cannot avail them. As a matter of fact, his claim for rent was not paid, and, if it had been, it was a proper matter of defense in the action at law. Complainants were not prevented in that suit from setting up that defense. It was their privilege to do it, and they cannot now be heard to raise the question. It is res judicata.” The learned judge dismissed the bill of complaint. In this Court it is again urged that the claim of defendant Robinson could not be set off in the action at law, for the reason that it-now appears that he had disposed of the claim to Tabor, a third party ; and, in support of this position, the following provision of the statute is cited: — 527 — “ It must have existed at the time of the commencement •of the suit, and must then have belonged to the defendant.” How. Stat. § 7365, subd. 4. It will be seen that the statute fixes the time when the right of set-off accrues, at the commencement of suit. The suit was commenced by the filing and service of declaration on the defendant, Robinson, on or about the seventeenth day of March, 1874; and, the defendant then owning the claim against the plaintiffs in his own right, he was not prohibited by the statute from interposing it as an offset. He did not assign it to Tabor until the twenty-third day of March. Tabor, however, took the assignment of the claim subject to all the defenses, legal and equitable, of the complainants, who were plaintiffs in that suit. The real difficulty consists, not only in the fact that the question has been litigated in the lawsuit, but in the want of mutuality between the demand due to Robinson and the unliquidated demand claimed to be due from Robinson to the firm of “ O. Robinson & Go.” We have held frequently that such demands cannot be set •off. McGraw v. Pettibone, 10 Mich. 530; Adams v. Bradley, 12 Id. 346; Elder's Appeal, 39 Id. 474; Learned v. Ayres, 41 Id. 677; Gardiner v. Fargo, 58 Id. 72; First Nat. Bank v. Barnum Wire Works, Id. 129; Ledyard v. Phillips, Id. 204. The decree of the circuit court dismissing the bill of complaint must be affirmed, with costs. Campbell, C. J., concurred. Morse, J., did not sit. Footnotes [1] This decree found an indebtedness of $2,070.33 due from defendani to complainants. [1] See 52 Mich. 389.